Exploring tax savings is a great way to boost your returns when investing in real estate. Cost segregation firms can help you to do this, but it’s important that you hire the right firm that fully understands the type of property you’re investing in and your goals. Below, we’ll take a deeper look into the concept of cost segregation and its benefits, while also listing 7 of the top cost segregation firms to consider hiring.
What is a Cost Segregation Firm?
Cost segregation firms are companies made up of specialized tax consultants. They evaluate real estate assets to identify components that depreciate quickly (like lighting, plumbing or carpets) and are able to reclassify these components in order to accelerate depreciation schedules. This helps to reduce taxable income for property investors while also having other benefits.
Benefits of Using a Cost Segregation Firm
Using a cost segregation firm has some of the following benefits:
- Tax savings: The primary benefit of using a cost segregation firm is that you can unlock substantial tax reductions. This is done largely through accelerating depreciation.
- Improved cash flow: A reduced tax bill can free up extra cash to reinvest into more properties or other business ventures.
- Better property valuation: Accelerated depreciation can enhance the overall value and appeal of an investment property, benefitting both current and future investors.
- Documented compliance: Working with a cost segregation firm gives you audit-ready documentation to support your tax deduction claims.
While some firms focus purely on cost segregation, others may also provide additional services, which could be worth combining. This includes green energy tax credits support or even appraisals, as you’ll see from some of the firms below.
The Top 7 Cost Segregation Firms for Real Estate Investors
Now that we’ve established what a cost segregation firm is and the value of working with one, let’s take a look at some of the top choices of firms from across the country. Each of the following firms is highly reputable, but they each have their own USPs.
- R.E Cost Seg – Best All-round Firm
R.E. Cost Seg tops the list as a good all rounder. They have experience working with a range of property types from single-family homes to large commercial buildings, providing professional advice for both small-scale and large-scale investors. Their team is meticulous and uses cutting-edge methodologies to help clients get the best savings. Expect tailored reports with detailed breakdowns. Their pricing is also a lot more attractive than many other cost segregation firms.
- KBKG – Best for Large Property Portfolios
KBKG is one of the biggest firms in the US and is therefore one of the best equipped to deal with larger and more complex property portfolios. They’re a popular choice among institutional investors and those managing multiple properties – choose KBKG if you want a company that can handle high-volume analyses without sacrificing accuracy or detail. They’ve also been quick to embrace modern technologies like AI, using it to help speed up the process so that you don’t have to wait ages for a report.
- CSSI – Best for Small-scale Investors
CSSI has over two decades of experience carrying out cost segregation and speciality tax services. They’re a popular choice among smaller investors because of their more competitive pricing and tailored approach. Boasting an engineering-first methodology, they are known for their clear and actionable insights and tend to have quite a fast turnaround of clients. It’s worth noting that they do work with larger portfolios too, making them a scalable option for small-scale investors looking to one day own property empires.
- Engineered Tax Services – Best for Combined Green Energy and R&D Tax Credits Support
Engineered Tax Services is a Florida-based firm that claims to conduct over 10,000 cost segregation studies per year. They are also experts in green energy-related tax credits and R&D tax credits. This makes them a good firm to look into if you’re an investor that’s passionate about environmentalism or innovation. In fact, many real estate developers work with Engineered Tax Services because of their focus on innovative and energy-efficient structures.
- Fabbi Cost Seg – Best for AirBnB Investors
Fabbi Cost Seg focuses heavily on short-term rental properties (i.e. AirBnB properties). Such properties are eligible for unique tax savings by exploring loopholes like the 7 day rule or by considering classification of unique items like security systems or hot tubs. Fabbi Cost Seg also has experience working with other types of real estate – those with a diverse portfolio may benefit from using their cost segregation services.
- Madison SPECS – Best for Commercial and Multi-family Properties
Madison SPECS caters largely to commercial real estate owners and business owners. They have an expert in-house team of CPAs and engineers that are able to conduct thorough site tours so that assets can be photographed and accurately measured. They also provide detailed IRS-compliant documentation that breaks all items down. Their free feasibility analysis is worth taking advantage of.
- Kroll – Best for Integrated Appraisal Services
Kroll is an NYC-based company known for its wide range of financial services. Many real estate investors are drawn to their all-in-one appraisal and cost segregation services. This allows you to more accurately estimate your selling price while also exploring tax benefits at the same time. They get a lot of praise for their deep technical expertise, especially when it comes to matters of compliance.
Choosing the right cost segregation firm for you
It’s vital that you choose a qualified firm that is able to carry out a fully engineered study and not just an automated estimate. All of the above firms have experienced teams of staff who will go into component level detail, providing you with IRS-compliant documentation to prove your tax deductions are acceptable.
Try to select a firm that understands your type of property and that can cater to your portfolio size. You also need to carefully consider your budget – the best providers will charge flat, transparent fees, but some will charge more than others, so take your time to shop around.
